John Key has been unable to turn our economy around

[NinjaNanna]

Reason why house prices are up is because now first home buyers are competing with "investors" whom have more than one home and a betting house prices will go up higher than their interest rate.

Not only that but they also get a rental income, whilst that doesn't cover the full interst burdeon and rates/maintenance etc, it goes a long way to helping with them.

Then you get yourself a good accountant and work some solid and a some creative accounting into the mix and hey presto the thing's negatively geared so the Tax man helps out a little too.

[avgas]

Avgas, what would you suggest as an alternative?

All fair enough arguments - have prepared a basic s/sheet with bank interest vs mortgage.
I haven't put final figures of house price in there as the value of the house may be $1M or $10M depending on market.
But if in 35 years you believe a house is worth $10M - doesn't that concern you about the NZ$ ?
Likewise while house values can go up, so can interest rates (anyone remember the 80's), expenses......

I am not saying housing is a bad market - but just stating the whole eggs in 1 basket thing is what caused the failed sub-primes in the first place.

ALWAYS INVEST IN MORE THAN 1 THING! who knows whats around the corner.

If you don't want to invest in markets yourself, why not just go into some form of "big pot" fund like the banks offer. You can select how risky it is etc

There are always more than one safe option. But I don't expect you to take my word on it - just like don't expect you to believe that if someone told you the property market was a way to make millions.

[Bald Eagle]

Not only that but they also get a rental income, whilst that doesn't cover the full interst burdeon and rates/maintenance etc, it goes a long way to helping with them.

Then you get yourself a good accountant and work some solid and a some creative accounting into the mix and hey presto the thing's negatively geared so the Tax man helps out a little too.

Hey, maybe I should get the bike negatively geared and the tax man could help with the ACC levy

[yachtie10]

Hey, maybe I should get the bike negatively geared and the tax man could help with the ACC levy

let me know if you can work that

I thought all bikes were negatively geared (from an investment perspective)

[SPman]

Those that harp on about the dividends that would flow overseas from these sales ‎‎(assuming that they go to overseas buyers) are conveniently ignoring the amount of ‎interest paid by the Govt on overseas borrowing. ‎

The theory is that for the sale to make immediate sense then the dividends given up would have to be less than the interest costs of the debt not incurred by selling the asset. In total, the four SOEs potentially up for sale generated total dividends last financial year of NZ$732.5 million and shareholder (government) equity stood at NZ$9.642 billion. This implies a combined (and very raw) dividend yield of 7.6% last year.
Yet the government is currently having to pay around 5.5% for the new debt it is selling, mostly offshore.
So on the face of it the government is a net loser by selling half of these state assets and avoiding having to raise new debt.

So.....we're borrowing at 5.5% interest....the assets are returning 7.5%...which is 2% better than the interest on borrowings, yet he's prepared to forgo the 2% advantage .......I dunno....whatever he's doing there's bound to be a catch somewhere to his mates advantage........
With all the doom and gloom being proposed, and yes, less debt is better.

"The truth of it is government debt at the moment is sitting at around about 18% of GDP and is likely to top out at, in all the numbers we have, at 28.5% of GDP. Now relatively speaking how does that put us? The answer is in very good shape (relative) to a lot of other countries. So the UK is on its way to 100% of GDP, the US is on its way to 100% of GDP, Japan is at 200% of GDP,....."The ratings agencies tell us ‘look if your debt is under 30%, you’re of no concern to them, if it’s between 30-60% they think it might hold back growth a little bit, but again of no major concern, anywhere near 100% then you really get their attention,

Funny that, I think one thing that should be privatised is prisons. Free market doesn't care so much about the PC bullshit that politicians need to deal with.

Well - they're going down that
road already.The Private Prison industry has said it will be no less expensive - it may cost more, in fact. And what PC bullshit - a prison is a prison - private companies have a woeful record overseas of abuse and cock-ups. The punishment in prison is the loss of liberty - not some fucked up sense of second hand retribution on an offender by somebody who has the brains and reactions of a flea and that's normally enough for the bulk of the population - would you be quite happy to go to prison for say, 5 years. Despite the claims to the contrary, prisons are not 5 star hotels where you do as you like - and the loss of liberty of a citizen is not something to be handled lightly by a private corporation looking for profit!!! If you are being denied your liberty to live among the community at large, at least it should be the government who are doing that!

[NinjaNanna]

All fair enough arguments - have prepared a basic s/sheet with bank interest vs mortgage.
I haven't put final figures of house price in there as the value of the house may be $1M or $10M depending on market.
But if in 35 years you believe a house is worth $10M - doesn't that concern you about the NZ$ ?
Likewise while house values can go up, so can interest rates (anyone remember the 80's), expenses......

I am not saying housing is a bad market - but just stating the whole eggs in 1 basket thing is what caused the failed sub-primes in the first place.

ALWAYS INVEST IN MORE THAN 1 THING! who knows whats around the corner.

If you don't want to invest in markets yourself, why not just go into some form of "big pot" fund like the banks offer. You can select how risky it is etc

There are always more than one safe option. But I don't expect you to take my word on it - just like don't expect you to believe that if someone told you the property market was a way to make millions.

That's a pretty big fail. You forget to take into account rental income.

I ran some numbers using real world figures for Rent/Rates/Insurance/Maintenance and can tell you that based on a $450,000 100% 30yr mortgage at today's interest rates the investor would have to top up the mortgage by approximately $1065 pm.

If he was to put that $1065 in the bank then at the end of 30yrs he would have saved $676,795, as long as the house is worth more than that in 30yrs then the property investor is ahead of the bank depositor.

Mind you this does not factor in risk to the property investment but it does include $30,000 worth of maintanence over the 30yr loan period.

[Oscar]

So.....we're borrowing at 5.5% interest....the assets are returning 7.5%...which is 2% better than the interest on borrowings, yet he's prepared to forgo the 2% advantage .......I dunno....whatever he's doing there's bound to be a catch somewhere to his mates advantage........
With all the doom and gloom being proposed, and yes, less debt is better.

If we don't shed some debt, our Sovereign Debt is going to get more expensive.

[NinjaNanna]

Well - they're going down that
road already.The Private Prison industry has said it will be no less expensive - it may cost more, in fact. And what PC bullshit - a prison is a prison - private companies have a woeful record overseas of abuse and cock-ups. The punishment in prison is the loss of liberty - not some fucked up sense of second hand retribution on an offender by somebody who has the brains and reactions of a flea and that's normally enough for the bulk of the population - would you be quite happy to go to prison for say, 5 years. Despite the claims to the contrary, prisons are not 5 star hotels where you do as you like - and the loss of liberty of a citizen is not something to be handled lightly by a private corporation looking for profit!!! If you are being denied your liberty to live among the community at large, at least it should be the government who are doing that!

Prisons are not rosey places to be but they could be tougher and less comfortable. My view is make them as tough as humanely possible and incarcerate people for a shorter time. Make it the last place a criminal wants to return to rather than an undesireable consequence of if they do happen to get caught the next time they re-offend.

But anyway that's off topic isn't it.

[Bald Eagle]

Prisons are not rosey places to be but they could be tougher and less comfortable. My view is make them as tough as ..... possible and incarcerate people.. Make it the last place a criminal wants to return to rather .

But anyway that's off topic isn't it.

There fixed it for you

[Camshaft]

give him a few more terms, i have more faith in what he can do then what helen did in her 9 years.

[MisterD]

If you don't want to invest in markets yourself, why not just go into some form of "big pot" fund like the banks offer. You can select how risky it is etc

+1 for managed funds, unless you've got the time to do all the research yourself, they're much the best way to have money in stock markets

[phill-k]

I know it doesn't apply to everybody, but it applies to far too many young families. Also it's not soley these young couples that are responsible for pushing up house prices, I think more of that blame lays with Mum and Dad investors, Mum and Dad don't understand productivity but they do understand bricks and mortar, so as the baby boomers kids left home, and they paid off their family home, they now have surplus income to sink into an investment property, demand then increased so prices increased, prices are rising so it must be a good investment, more Mum and Dads jump on the bandwagon, prices keep going up. Desperate to get into their own home (and perhaps with champayne tastes on beer budgets) young couples borrow too much and against both incomes. What Mum and dad have now unwittingly done is doubled their money on an investment property but to get it they've actually taken it directly from their kids and grandkids. The other knock on effect of rising house prices is upwards wage pressure, causing all sorts of other economic pressure.

To me it seems patently stupid for a government to favour residential property investment, in my view they'd be much better off making the family home tax deductable to allow people to pay it off sooner. The sooner its paid the sooner we reduce our national debt and reliance on foriegn lending and the sooner they can put their income toward productive investments.

As for why prices haven't dropped so badly it's partly because market forces are definately still at play, buyers are still willing to mortgage their combined incomes for the next 20-30 yrs, sellers simply won't sell for less than they owe or what their perceived value is, NZ hasn't been too badly affected by unemployment so mortgage foreclosures haven't been as bad as the likes of the US.

Damn another rant ... I really should give it a rest.

I have heard your theory preached many times but would have to say the majority of those that invested in a rental property 5 yrs ago still own them all be it they may have diminished in value by 5 - 10%, however those that saw the flash add on TV such as Hanovers now have lost in some cases all their savings even though as you say it fits the governments preferred investment.
If I had a couple of hundred grand to invest I can tell you until such time as regulation is introduced that cuts the balls of the likes of those directors who at present are hiding behind trusts ect and aren't being made accountable for the millions and millions of dollars they wiped out, I would be buying rental properties because sure as eggs the housing market in NZ will grow again and real money will be there to be made, there is no other safe investment in NZ.

[Winston001]

Cripes! From govt asset sales to the property market. We sure cover all the bases.

Ok, here's my 2cents on investment:

NZ is underpopulated and a very attractive country to live in. Its fair to predict that wealthy people from other parts of the world will want to come here to escape population pressures. If that comes true, property investment will be very secure.

But even in normal times property is sound and safe.

Shares: not as risky as many think but when a company goes belly-up, you lose the lot. Houses do not go into liquidation.

The safest and simplest share investing is to buy index funds. These track share market movements, not individual companies. Managed funds are next best but quite different. There are thousands of managed funds but only a handful of managers in the entire world actually succeed. Er..yeah...like Bernard Madoff. http://en.wikipedia.org/wiki/Bernard_Madoff

FYI I have followed sharemarkets and invested in shares for 25 years. During that time I have watched and helped many ordinary people buy a home and then a holiday home or rental property. No skill or pretended cleverness, just patience and hard work.

My observation? If I'd never heard of shares and just bought houses, I'd own an MV Agusta and be living by the sea with my feet up.

[Winston001]

I also find it interesting that people think prices are way overvalued. most houses that i have looked into have barely doubled over the last 15 years. While prices went up too fast I dont hink they are unreasonable now if you are unemotional and buy carefully (this obviously will be different depending on where you buy).

The method of working out house price levels - anywhere - is to look at the longterm relationship between household income and price.

In New Zealand the long-term average price is equivalent to 3.5x household income. The current household income is approx $70k x 3.5 = $245,000.

However the current average NZ house price equates to between 5.5 and 6.5x household income, depending upon where you live. So logically we have a way to go with prices dropping before we return to average.

What is more likely is prices will stay flat while wages slowly rise. Japan has had 20 years of no property growth. Indeed some prices are the same as they were in 1985.

[NinjaNanna]

The method of working out house price levels - anywhere - is to look at the longterm relationship between household income and price.

In New Zealand the long-term average price is equivalent to 3.5x household income. The current household income is approx $70k x 3.5 = $245,000.

However the current average NZ house price equates to between 5.5 and 6.5x household income, depending upon where you live. So logically we have a way to go with prices dropping before we return to average.

What is more likely is prices will stay flat while wages slowly rise. Japan has had 20 years of no property growth. Indeed some prices are the same as they were in 1985.

This is true, but a good percentage of the increases are also due us developing champagne tastes, the long term average captures a very large period of 2&3 bedroom homes with 1 bathroom.

I shudder when I think what the supposed average house is meant to be now.

Also somewhat perversely the old houses raised families with 2/3/4/5 kids as opposed to the McMansions that are built today with the express purpose of having enough space so you don't need to be anywhere near your teenagers.